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Another Way the Government is Ripping You Off!

 GET OUT... GET OUT... GET OUT

Folks, you gotta read this, even if you read nothing else this week.  For almost a year our beloved President of The Professional Hillbilly Association of America has been telling me that the government wants our 401K's and IRA's to help with the government's financial crisis.  I've been reluctant to pursue the story because I didn't want to believe it.  Independent sources close to Prohillbilly.com are now confirming this is an option the government is strongly considering.  Don't stick your head in the sand on this, like I did, act now to save yourself from the government controlling your retirement monies.

 

Very Soon, Mr. Potato Head and  Congress are planning to take over your Individual Retirement Accounts, including 401K's and company funded pensions and managing it on its own. This is there way to help to manage their out of control spending leading to a growing 13 trillion dollar debt and unimaginable trillion dollar deficit.

 

Here's what they're thinking

There is an enormous debt and deficit thanks to our government's mismanagement.  Most of us have money tied up in 401K's, IRA's and company funded pensions.  Reported by BusinessWeek and others the Treasury and Labor departments are requesting public comment on "the conversion of 401k's and IRA's into annuities or other "stable" payments.  In other words, the government will control these retirement payments to you.  You won't have the option to withdrawal a large sum for let's say a purchase of a, new boat, a car or a vacation.  You will only receive a fixed income payment from your money and it's the government who will determine just how much you get.  When you die the government keeps your money at least what they have not distributed.

 

Here's the governments plan

The government will take over your 401k's, IRA's and company funded pensions. They will promise to pay you a monthly amount when you retire. Teresa Ghilarducci of the New School for Social Research in New York, who was a part of hearings last fall held by the House Education and Labor Committee, suggested giving all "workers" a $600 annual inflation-adjusted subsidy from the U.S. government.  The "workers" will be mandated by law to invest 5 percent of their income into a (GRA) Guaranteed Retirement Account that would be managed by the Social Security Administration.  The real fraud is that this GRA will actually be invested in US Treasury Bonds that will be used to pay down the debt and deficits.  So now they are taking your future retirement income to pay for current debt.  Where's the income going to come from when you are ready to retire?  The government has already spent it!  Sounds worse than the Social Security program.  Notice above they are already referring to us as Workers sounds like the Kremlin to me.  And, furthermore...Calling it a GRA, Guaranteed Retirement Account, That's suppose to make us feel better than let's say Social Security which is out of money.  

 

I know what my old man would say, "Thievin' Bastards."  Only he would have a few more choice adjectives, nouns and verbs thrown in that are not appropriate for this article.  It's time to get mad!

 

They could do this

It appears the government is floating a balloon by saying "We're only asking questions and considering the what if's."  Prohillbilly's President and other financial experts think this could become reality soon. 

 

Even worse if this 401K/IRA and pension to GRA conversion happens, based on Treasury bond interest rates the benefits may end up being inadequate compensation for years of savings since the government has been suppressing yields since this budget and financial crisis started.  Successful pension fund managers know they need around 8% return to remain solvent, Treasuries are paying only 2%.  The math doesn't add up!  Also, any increase in interest rates devalue the Treasuries, so the risk of this money disappearing after the government gets it hands on it is very real.  It would just get swallowed up and be gone.

 

How does this effect a hillbilly

The current concept being discussed has no guaranteed amount available to us when we retire.  In-fact nobody can say whether we'll have an "account" or this just becomes a payment from a collective government controlled fund.

 

This is a good time to consider discussing options other than traditional 401k's, IRA's and pensions with your money manager.  Don't sit back and expect the government to do the right thing, protect yourself.  We'd like you to consider joining Prohillbilly.com so you can continue to get the information you want and need to be better prepared.  If you're already a member you know that membership has it's advantages.

 

GET OUT OF THE STOCK MARKET NOW!

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 Get out of the Stock Market and Fixed Income investments NOW.....

Look Out in 2012 for a major drop in productivity, jobs and profits.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans-Bill Gates and Warren Buffett-hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it's also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992-over $15 billion-in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.

In 1981, Ronald Reagan-with bipartisan support-began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.  The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet.

Published by Art Laffer in the Wall Street Journal.  Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).Enter content here

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